IMF cautions on AI, raises India outlook

The International Monetary Fund (IMF) has sounded a warning note on the exuberance in artificial intelligence, cautioning that a failure to achieve productivity gains could curb investments, slam markets and radiate across the world through tightening financial conditions.

- Gireesh Chandra Prasad [e-mail]

The multilateral agency, which commended the global economy’s resilience amid trade tensions, on Monday sharply raised the projection for India’s FY26 growth to 7.3% from 6.6% in October. Its World Economic Outlook 2026 said growth would moderate to 6.4% in FY27 and FY28 as cyclical and temporary factors wane.

"Reevaluation of productivity growth expectations about AI could lead to a decline in investment and trigger an abrupt financial market correction, spreading from AI-linked companies to other segments and eroding household wealth. Trade tensions could flare up, prolonging uncertainty and weighing more heavily on activity. Domestic political tensions or geopolitical tensions could erupt, introducing new layers of uncertainty and disrupting the global economy through their impact on financial markets, supply chains, and commodity prices,” it warned.

The IMF's concern is that if expectations of AI-led productivity gains aren't met, a sharp drop in investments can ensue.

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Meanwhile, India’s inflation may return to near target levels after a marked decline in 2025, the IMF noted. It also upgraded its estimate of global growth for 2025 and 2026 to 3.3%, from 3.2% and 3.1% respectively in October.

The multilateral agency also upgraded its estimate of global economic growth for calendar years 2025 and 2026 to 3.3%, from 3.2% and 3.1% respectively in October. For 2027, it forecast 3.2% growth. However, it warned that overoptimism about AI, alongside rising trade and geopolitical tensions, could trigger a sharp market crash and disrupt the global economy.